The reference price index of the Federal Reserve In March, the PCE registered its highest level since 1982 for 12 months, but Americans continued to spend, data that is known a few days before the meeting in which the central bank will raise its interest rates again.
The inflation rose 6.6% in the 12 months to March in the United States and prices rose 0.9% between February and last month, according to the PCE index released Friday by the Commerce Department.
This indicator, which is the one followed by the Federal Reserve (fed), thus maintaining its maximum in 40 years.
The Fed will hold its meeting monetary politics next Tuesday and Wednesday, after which a new increase in interest rates is expected to ward off the inflationary spiral.
The chairman of the Federal Reserve (Fed), Jerome Powellalready indicated that an increase of half a percentage point in the reference rate would be “on the table” at the meeting on May 3 and 4.
The other measure of inflation in the United States, the CPI published at the beginning of the month by the Department of Labor and a reference for calculating pensions, showed an increase in prices of 8.5% in the 12 months to March, the largest increase since December 1981.
The two measures are calculated from different groups of goods and services, which explains the difference in percentages.
The PCE index reported increases in all sectors of goods and services.
“Energy prices increased 33.9% while food product prices rose 9.2%” in 12 months, the department said in a statement.
The soaring rise in the energy sector was fueled by the invasion of Russia a Ukraine since February 24, and the economic sanctions adopted by Western countries against Moscow.
Excluding the more volatile food and energy prices, the Underlying inflation for the PCE it remained equally high in March, at 5.2% at 12 months.
Consumer spending partly reflects this sharp rise in prices, with increases of 1.1% over February.
Income, meanwhile, grew somewhat below expenses: 0.5% after 0.7% in February.
Savings
The economists they understand that rising spending bodes well for growth in the second quarter.
Expenditures on gasoline and gas weigh heavily on the household budget, particularly the most modest ones.
But experts stress that families with greater purchasing power travel again, go to restaurants, the movies, the theater and do not seem to be scared by prices.
Consumption is the historical engine of North American growth, and services are a significant sector in USA.
“The rapid rise in prices is not enough to dissuade consumers from spending in March,” summed up Lydia Boussour, an economist at oxford economicsin a note.
The specialist points out that after adjusting the data to consider the increase in prices, “real expenses increased by only 0.2%.”
To sustain consumption, families used savings, since their income increased by only 0.5 percent. The savings rate thus fell to 6.2%, compared to 6.8% the previous month, to place at its lowest level since December 2013.
Economists don’t see a problem in using savings that grew during the pandemic, when spending was constrained by mobility restrictions.
According to Boussour, “consumers’ tolerance for high inflation will continue to be tested, but the rise in spending in March (…) constitutes a solid base (…) for GDP growth in the second quarter.”
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